DOL and IRS Plan to Coordinate on Employee Misclassification Compliance

Secretary of Labor Hilda L. Solis, on Sept. 19, 2011, hosted a ceremony at U.S. Department of Labor (DOL) headquarters in Washington, D.C., to sign a memorandum of understanding with the Internal Revenue Service (IRS) that will improve departmental efforts to end business’s misclassification of employees. In addition, labor commissioners and other agency leaders representing seven states signed memorandums of understanding with the department’s Wage and Hour Division and, in some cases, its Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs and Office of the Solicitor. The signatory states are Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington.

In addition, Solis announced agreements for the Wage and Hour Division to enter into memoranda of understanding with the labor agencies of Hawaii, Illinois and Montana as well as with New York’s attorney general.

The memoranda of understanding will enable the DOL to share information and coordinate law enforcement with the IRS and participating states in an effort to level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state laws.

“We’re here today to sign a series of agreements that together send a coordinated message: We’re standing united to end the practice of misclassifying employees,” said Solis.

Business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal unless they are used to evade compliance with federal labor laws—for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law. In addition, misclassification can create economic pressure for law-abiding business owners.

These memoranda of understanding arose as part of the DOL’s Misclassification Initiative, which was launched with the goal of preventing, detecting and remedying employee misclassification.

Employers are reminded again about the importance of proper classification of employees. If you have questions about the appropriate use of independent contractors in your business, contact Ann Plunkett at WorkPlace Partners.